Rebounding Oil Prices Capped By Strong Dollar

Crude is lacking conviction to finish the week – being pushed and prodded around: caught in the undertow of rising equity markets, but being held in check by a firming dollar. Hark, here are five things to consider in the oil market today.

1) The news flow from Nigeria continues apace. No sooner is the force majeure lifted on Bonny Light, before more infrastructure is attacked by the Niger Delta Avengers. While our ClipperData highlights how Nigerian crude exports have held up well in recent months, it also shows how certain grades such as Bonny Light and Brass River have dropped to their lowest level for the year.

To offset these losses we have seen other grades increase, and as Qua Iboe ramps up again, crude exports are increasing once more….just as Nigerian oil workers go on strike.

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2) According to IHS Energy, nearly 70 percent of fracking equipment is idled in the U.S., while 60 percent of workers have been laid off in recent years. Oil services companies such as Schlumberger are said to have dropped their prices to levels which can’t be sustained; negative cash flow can only be maintained for so long. Seventy services firms have filed for bankruptcy since the beginning of 2015, with nearly half of those seen this year.

3) The chart below helps to underscore how oil services companies have dropped their prices amid the oil price slump in an effort to incentivize drilling activity. While there are tentative signs that rig rates may be rebounding, there is also evidence that companies are gaining confidence to start investing in oil and gas projects again.

Chevron has committed to a $37 billion project in Kazakhstan, while BP has agreed to a $8 billion LNG project in Indonesia. With two more big projects expected to be approved this year – BP’s Mad Dog operation in the Gulf of Mexico and Eni’s LNG development off Mozambique – there are signs of life from the oil and gas exploration sector once more.

The chart below shows how thousands of older workers in the oil industry are going to be retiring in the next two decades. According to the API, the oil, natural gas and petrochemical industries employed 1.4 million people last year; as baby boomers retire, oil and gas companies are going to need to hire ~30,000 people annually to plug the gap.

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5) Finally, the chart below shows waterborne crude flows to Asia through the first half of the year. Although they appear fairly steady at first glance, we have in fact seen imports drop by a million barrels per day since February. Perhaps the canary in the coalmine regarding a global slowdown?